158 Learning Module 5 Analyzing Statements of Cash Flows II

Exhibit 1: Groupe Danone Consolidated Financial Statements

Consolidated Statements of Cash Flows (in EUR millions)
​

Years Ended 31 December 2016 2017

Net income 1,827 2,563

Share of profits of associates net of dividends received 52 (54)
Depreciation, amortization, and impairment of tangible
and intangible assets 786 974
Increases in (reversals of ) provisions 51 153
Change in deferred taxes (65) (353)
(Gains) losses on disposal of property, plant and equip-
ment and financial investments (74) (284)
Expense related to group performance shares 24 22
Cost of net financial debt 149 265
Net interest paid (148) (186)
Net change in interest income (expense) — 80
Other components with no cash impact 13 (15)
Cash flows provided by operating activities, before
changes in net working capital 2,615 3,085
(Increase) decrease in inventories (24) (122)
(Increase) decrease in trade receivables (110) (190)
Increase (decrease) in trade payables 298 145
Changes in other receivables and payables (127) 40
Change in other working capital requirements 37 (127)
Cash flows provided by (used in) operating activities 2,652 2,958
Capital expenditure (925) (969)
Proceeds from the disposal of property, plant, and
equipment 27 45
Net cash outflows on purchases of subsidiaries and finan-
cial investments (66) (10,949)
Net cash inflows on disposal of subsidiaries and financial
investments 110 441
(Increase) decrease in long-term loans and other long-term
financial assets 6 (4)
Cash flows provided by (used in) investing activities (848) (11,437)
Increase in capital and additional paid-in capital 46 47
Purchases of treasury stock (net of disposals) and Danone
call options 32 13
Issue of perpetual subordinated debt securities — 1,245
Interest on perpetual subordinated debt securities — —
Dividends paid to Danone shareholders (985) (279)
Buyout of non-controlling interests (295) (107)
Dividends paid (94) (86)
Contribution from non-controlling interests to capital
increases 6 1
Transactions with non-controlling interests (383) (193)
Net cash flows on hedging derivatives 50 (52)
Evaluating Sources and Uses of Cash 159

Years Ended 31 December 2016 2017

Bonds issued during the period 11,237 —
Bonds repaid during the period (638) (1,487)
Net cash flows from other current and non-current finan-
cial debt (442) (564)
Net cash flows from short-term investments (10,531) 9,559
Cash flows provided by (used in) financing activities (1,616) 8,289
Effect of exchange rate and other changes (151) 272
Increase (decrease) in cash and cash equivalents 38 81
Cash and cash equivalents at beginning of period 519 557
Cash and cash equivalents at end of period 557 638
Supplemental disclosures

Income tax payments during the year (891) (1,116)

​

Note: the numbers in the consolidated statement of cash flows were derived straight from com-
pany filings; some sub-totals may not sum exactly due to rounding by the company.

Exhibit 2: Excerpt from Groupe Danone 2017 Registration Statement

Footnote 2 to the financial statements:

“On July 7, 2016, Danone announced the signing of an agreement to
acquire The WhiteWave Foods Company (“WhiteWave”), the global leader
in plant-based foods and beverages and organic produce. The acquisition in
cash, for USD 56.25 per share, represented, as of the date of the agreement,
a total enterprise value of approximately USD 12.5 billion, including debt
and certain other WhiteWave liabilities. …
“Acquisition expenses recognized in Danone’s consolidated financial
statements totaled €51 million before tax, of which €48 million was rec-
ognized in 2016 in Other operating income (expense), with the balance
recognized in 2017.
“WhiteWave’s contribution to 2017 consolidated sales totaled €2.7 bil-
lion. Had the transaction been completed on January 1, 2017, the Group’s
2017 consolidated sales would have been €25.7 billion, with recurring
operating income of €3.6 billion.
“Meanwhile, integration expenses for the period totaled €91 million,
recognized under Other operating income (expense).”
Overview of Activities:
“As part of its transformation plan aimed at ensuring a safe journey to
deliver strong, profitable and sustainable growth, Danone set objectives
for 2020 that include like-for-like sales growth between 4% and 5% …. a
recurring operating margin of over 16% in 2020 … Finally, Danone will
continue to focus on growing its free cash flow, which will contribute
to financial deleverage with an objective of a ratio of Net debt/EBITDA
below 3x in 2020. Danone is committed to reaching a ROIC level around
12% in 2020.”
160 Learning Module 5 Analyzing Statements of Cash Flows II

1. What are the major sources and uses of cash for Groupe Danone?
Solution:
The major categories of cash flows can be summarized as follows (in EUR
millions):
​

2016 2017

Cash flows provided by operating activities 2,652 2,958

Cash flows provided by (used in) investing activities (848) (11,437)
Cash flows provided by (used in) financing activities (1,616) 8,289
Exchange rate effects on cash (151) 272
Increase in cash 38 81
​

The primary source of cash for Groupe Danone in 2016 was operating ac-
tivities of 2,652. During that year, the company spent 925 on capital expen-
ditures, representing most of the outflow of 848 from investing activities.
In 2017, however, the primary source of cash for Groupe Danone was from
financing activities. The investing section shows significant use of cash in
2017 for purchase of subsidiaries within investing activities.

2. Is cash flow from operating activities sufficient to cover capital

expenditures?
Solution:
Yes, in both 2016 and 2017, there was sufficient operating cash flow to cover
usual capital expenditures.

3. What is the relationship between net income and cash flow from operating
activities?
Solution:
In both years, operating cash flow exceeded net income. The fact that oper-
ating cash flow exceeds net income in both years is a positive sign.

4. What types of financing cash flows does Groupe Danone have?

Solution:
Footnotes disclose a major acquisition with an aggregate value of USD12.5
billion, some of which was funded through proceeds from an earlier bond
issuance, which appears as a financing cash flow in the financing section for
2016.

3 RATIOS AND COMMON-SIZE ANALYSIS

calculate and interpret free cash flow to the firm, free cash flow to
equity, and performance and coverage cash flow ratios

In common-size analysis of a company’s income statement, each income and expense

line item is expressed as a percentage of net revenues (net sales). For the common-size
balance sheet, each asset, liability, and equity line item is expressed as a percentage